Fixed index annuities (FIAs) are financial products designed to help individuals save for retirement while also providing a reliable stream of income once they retire. These annuities offer a blend of benefits, allowing you to accumulate money over time in a manner that is less risky than traditional market investments. Fixed index annuities are linked to a specific market index, and the annuity earns interest based on the index's growth, subject to a cap or a participation rate. A fixed index annuity can be an ideal choice for individuals looking for a safe, yet growth-oriented investment vehicle that balances the potential for market-linked returns with the protection of principal. This makes it especially suitable for those seeking to safeguard their retirement savings while also taking advantage of favorable market conditions.

What IS a Fixed-Index Annuity?

A fixed index annuity is a contract between you and an insurance company. In exchange for the money you place in your annuity, the insurance company guarantees several benefits – including a steady stream of retirement income. And because it’s designed to help you prepare for retirement, a fixed index annuity provides certain tax advantages as well. One of the major advantages of FIAs is that they provide a level of protection from market downturns -- your principal is not at risk, meaning that you will not lose money due to negative market performance. This makes fixed index annuities an appealing option for conservative investors who want to take advantage of market growth without the risk of losing their initial investment.

What is the best age to buy an Annuity?

The answer depends on your financial goals. If your main goal is saving enough for retirement, buying a fixed index annuity when you’re still a few years away from retirement may be a good choice. That’s because FIAs are designed to help the money in your contract grow tax-deferred over time. And the younger you are when you buy your annuity, the longer your money has to grow tax-deferred.Fixed index annuities typically come with a guaranteed minimum interest rate, ensuring that even if the market performs poorly, you will still earn some return on your investment. This feature provides a sense of security while still allowing for potential growth during strong market years.

Are Fixed-Index Annuities appropriate for Retirement?

When it comes time to retire, fixed index annuities can offer a steady stream of income, often for the remainder of your life, depending on the specific type of annuity you choose. This can provide financial stability in retirement, as the income is predictable and not subject to the volatility of the stock market. Fixed index annuities are designed to protect the money you place in the contract from market volatility. Although FIAs may credit interest based on changes in an external index, you’re not actually participating in the market – so the principal in your annuity is never at risk due to market losses.

What happens to your Annuity if you die?

If you have not yet started receiving income payments from your annuity (i.e., you haven’t begun "annuitization"), the remaining funds in the account are typically passed on to your beneficiary. In other words, if you die before receiving any regular payments (while the annuity is still in its "accumulation" phase), your beneficiary will inherit the full value of your annuity, minus any applicable fees or charges. The exact amount passed on depends on the terms of the annuity and whether there are any built-in features (such as a death benefit) that may affect the final payout.

What does "Principal Protection" mean?

"Principal Protection" in the context of a Fixed-Index Annuity (FIA) means that the initial amount of money you invest in the annuity, known as the principal, is safeguarded from any losses caused by market downturns. Even though the returns on an FIA are tied to the performance of an external index, such as the S&P 500, you are not directly invested in the market. This means that while the index may rise or fall, the principal amount you invested is not subject to the risks it would be if you were directly invested in stocks or mutual funds. In other words, you won’t lose money due to market declines, ensuring that your original investment remains intact -- even in volatile conditions.

What is Indexed Interest?

"Indexed Interest" in the context of Fixed Index Annuities (FIAs) refers to the interest that your annuity earns based on the performance of a specified external index, such as the S&P 500 or another financial benchmark. When the index experiences positive changes, the value of your annuity can increase, as it is designed to credit interest based on those positive movements. FIAs are not directly invested in the index itself. Instead, the annuity tracks the performance of the index and calculates the indexed interest based on its changes, without exposing you to the same risks as investing directly in stocks or other market-based assets. This means that your principal is protected from any losses that the index may incur. If the index declines, you won’t lose money, and your principal remains intact.

How is Indexed Interest Calculated?

In simple terms, indexed interest for a Fixed Index Annuity (FIA) is calculated by looking at how a specific market index (like the S&P 500) performs over a certain period, but without you directly investing in the market. Your FIA is tied to a market index, such as the S&P 500. The annuity contract will define a specific period (monthly, quarterly, or annually) during which the performance of the index is measured. The insurance company looks at the value of the index at the beginning and end of the period. For example, if the index starts at 1,000 points and ends at 1,100 points, that’s a 10% increase, and if your annuity has an 80% participation rate, 80% of 10% would be 8% interest for the annuity that period. If the index goes up over time you may earn interest, but if the index goes down, you typically don’t lose any money because your principal is protected.

Six Reasons to Consider a Fixed-Index Annuity (FIA)

1. ACCUMULATE FOR RETIREMENT

FIAs offer the potential to earn interest based on changes in an external index. Annuities give you a choice of several indexes and even some exclusive index options.

2. PROTECT YOUR PRINCIPAL

Your contract can earn interest based on an external index, but you’re not actually buying any stocks or shares of an index. This means the money in your FIA (your “principal”) is not at risk due to market losses.

3. GROW TAX-DEFERRED

You don’t pay taxes on the interest your annuity earns until you take money out. This helps compound your interest, so the money in your contract can accumulate faster.

4. GET FLEXIBILITY

Some FIAs offer riders (either built in or at an additional cost) to help you address specific needs. They also offer a variety of crediting methods and flexible options for receiving income.

5. RECEIVE GUARANTEED INCOME

Annuities are designed to provide a reliable stream of retirement income, either for a set period or for as long as you live. Some FIAs even offer you the potential to get increasing income.

6. LEAVE A LEGACY

FIAs pay your loved ones a death benefit if you pass away before you start taking scheduled annuity payments. (And, if properly structured, the death benefit is not subject to probate)